NBS Raises Key Rate to 6%, Its First Change in 26 Months, on Energy Shock

The Executive Board of the National Bank of Serbia (NBS) raised the key policy rate by 25 basis points to 6% on Thursday, 12 November. The rate had stood at 5.75% for 26 months. The deposit facility rate went up from 4.5% to 4.75% and the lending facility rate from 7% to 7.25%. Economists polled by Bloomberg Adria had expected no change.

Why the NBS raised interest rates

The central bank pointed to current and expected inflation and to risks at home and abroad. It said the conflict in the Middle East has kept global energy markets unsettled and pushed up the prices of oil, gas and electricity, that oil inventories used to cushion prices early in the conflict have been run down, and that refining margins, especially for diesel, have widened. The NBS called the hike "an adequate and timely measure" to stop the energy shock from feeding into other prices.

Annual inflation in Serbia rose from 4.1% in September to 4.4% in October. According to reporting by Srbija Danas, the bank sees a risk that inflation will rise above the 4.5% upper limit of its target band in 2027 before returning to the target by the end of that year.

What it means for loans and savings in dinars

The borrowers most exposed are those with variable-rate dinar loans, particularly loans tied to BELIBOR, the Belgrade interbank rate. Fixed-rate loans are not affected by the decision. Most euro-indexed housing loans are tied to EURIBOR, which follows the European Central Bank rather than the NBS. In an illustrative example, a five-year cash loan of 1 million dinars whose rate rose from 10.50% to 10.75% would cost about 124 dinars more a month. Banks may also offer better terms on dinar deposits, but that is not automatic.

Reactions and the next NBS meeting

The decision was the first rate-setting meeting since the 25 October parliamentary election, won by the Student List, and comes before a new government has been formed. Milan Ćulibrk, editor-in-chief of the weekly Radar, told N1 that the move shows inflation will be higher than planned, and linked it to price and margin caps introduced by the outgoing government. He argued the rise should not be blamed on the incoming majority. Supporters of the caps have said they were meant to protect household budgets.

The NBS Executive Board is due to meet again on 10 December.